How to Protect Your Money With Banks Facing Turmoil

The problems at Credit Suisse are fueling anxiety for people who want to make sure their money is safe.

Days after three US banks failed, the Zurich-based financial behemoth saw its shares post the biggest one-day selloff on record and its bonds were showing signs of  deep financial stress. With other bank stocks plunging, Bridgewater Associates founder Ray Dalio warned that the SVB failure last week was a “canary in the coal mine” showing cracks in the global financial system.

At the same time, concerns remain about the financial health of regional US banks. What does it all mean for deposits and investments? Personal finance experts have tips for how to stay calm and manage your money.

“American consumers could face potential consequences such as reduced access to credit, changes to interest rates on deposits, or losses on investments due to the bank’s troubles,” said Thilan Kiridena, founder and chief executive officer of Capital Elements Advisors in New York. “Therefore, consumers should stay informed about the financial health of institutions they have relationships with.”

What happens if my bank fails?

The good news for US investors is that the Federal Deposit Insurance Corp. covers up to $250,000 per depositor in qualified accounts at insured banks. In addition, US authorities created a new backstop for the country’s banks after the SVB ordeal that they said is big enough to protect the entire nation’s deposit

“If you have less than $250,000 in deposits, then you’re guaranteed,” said Mike Bailey, director of research at FBB Capital Partners. “Even if your bank is in trouble, your deposits are in good shape.”

Those with more than that amount should consider diversifying by spreading out deposits among multiple banks, he said.

You can also be strategic about who is listed as the depositor on an account. The FDIC insures up to $250,000 for each co-owner of a joint account, so if you’re married, you can get $1 million of FDIC coverage by having a personal bank account in your name, a personal bank account in your spouse’s name and a joint account.

What’s the situation in the Asia-Pacific?

Like the US, most countries in Asia have a deposit insurance system in place. You can check here whether your country has such a guarantee.

Here’s a quick roundup — but it’s worth noting that each system has its own intricacies, so reading the details on the various websites is advised. Hong Kong protects all deposits up to HK$500,000 ($63,700) per customer per bank or financial firm, while Singapore insures up to S$75,000 ($55,500) and Malaysia up to 250,000 ringgit ($55,500). Australia has a government-backed safety net for up to A$250,000 ($165,800) per account holder, while South Korea covers up to 50 million won ($38,100). Japan’s deposit insurance system guarantees up to 10 million yen ($75,400) in principal and interest. China has had a deposit insurance program in place since 2015 protecting up to 500,000 yuan ($72,400).

One notable exception is New Zealand, where the government is currently in the process of setting deposit insurance up.

What do we know about possible Credit Suisse clients in Asia?

Indian tycoon Gautam Adani, Japanese billionaire Masayoshi Son,  Alibaba Group Holding Ltd.’s founders and Chinese educational software company Gaotu Techedu Inc. CEO Larry Chen have all had banking relationships with Credit Suisse. Bill Hwang, founder of collapsed hedge fund Archegos Capital Management, was also a client.

Is my bank safe?

It can be difficult for the average person to delve through complicated financial documents to determine their bank’s level of risk, but experts say there are some simples steps you can take to protect yourself.

Chris Diodato, founder of WELLth Financial Planning in Palm Beach Gardens, Florida, recommends looking at your bank’s credit rating, which can be found online. Firms like S&P Global Ratings and Fitch Ratings publish reports. If you see that your bank has been downgraded recently, that could be a bad sign.

It’s also important to confirm your bank is FDIC-insured, said Jennifer White, senior director of banking and payments intelligence at J.D. Power. Click here to check if your bank is covered.

What if my bank’s stock is plunging?

Watching the share price of your bank plunge is never fun, but remember that price action in the stock market is often based on sentiment rather than actual fundamentals.

“A lot of the equity volatility doesn’t necessarily translate to the stability of your bank,” said Matt Miskin, co-chief investment strategist at John Hancock Investment Management. “What’s happened so far is banks made poor choices in risk management and capital allocation. Higher quality banks likely don’t face that same issue.”

Bank stocks are also pricing in the possibility of greater regulatory oversight after this episode is over, as well as a changing interest rate environment, in which lower rates reduce profitability, Miskin said.

Still, there is the risk that lower customer confidence can cause a vicious cycle, according to Elliot Pepper, financial planner and director of tax at Northbrook Financial in Baltimore.

“It can create a self-fulfilling prophecy where investors believe a company is losing value and then, in the case of a bank, value is actually lost as customers rush to draw deposits, thus forcing a company to realize losses that they would otherwise be able to ride out,” Pepper said.

Should I move my money?

There’s a temptation for those with money in smaller, regional banks to transfer funds to a larger, national firm like Wells Fargo or Bank of America. In fact, the latter gained more than $15 billion in new deposits in recent days.

However, moving your money can cause you to incur transfer fees. And if you currently have cash in certificates of deposit that impose early withdrawal penalties, taking your funds out could cost you. For instance, the withdrawal fee on some of the CDs at First Republic Bank is up to 15 months’ worth of interest.

Changing banks can also create confusion, leaving you with funds in the wrong places and creating more work for yourself.

One potential reason to move your cash is if you can earn a better yield on it elsewhere. Many savings accounts at traditional banks pay next to nothing in interest, while high-yield accounts like Goldman Sachs’ Marcus offer an annual percentage yield of 3.75%. Series I savings bonds are also currently offering a 6.89% interest rate and are backed by the federal government.

“This could be a good time to see if investing the funds elsewhere makes sense,” said Seth Mullikin, a financial planner and founder of Lattice Financial. “Six-month treasuries and CDs are both yielding around 5%. This could be a better option for short-term savings.”

Are my investments OK?

With markets volatile, financial experts caution against making any drastic changes to your financial plan. Still, many investors are now expecting the Federal Reserve to pause its rate hikes. That could be good news for the stock market, which has taken a hit as the Fed aggressively raised rates to combat inflation.

At the same time, ripple effects from a banking crisis could push the economy into a recession.

“The chances that growth will slow significantly over the rest of the year has grown substantially,” wrote Matt Maley, chief market strategist at Miller Tabak + Co. in a note Wednesday. “The odds that we’ll fall into recession before the end of the year have rocketed higher to well over 90% in our opinion.”

— With assistance by Ainsley Thomson and Cecile Vannucci